5 Reasons That Make ArcelorMittal (MT) A Solid Pick Now
Zacks Investment Research | May 23, 2018 08:59AM ET
ArcelorMittal’s (NYSE:MT) stock looks promising at the moment. We are positive on the company’s prospects and believe that the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.
Let’s delve deeper into the factors that make this steel behemoth an intriguing choice for investors right now.
What’s Working in Favor of MT?
Solid Rank & VGM Score: ArcelorMittal currently has a Zacks Rank #1 (Strong Buy) and a industry over a year. The company’s shares have rallied around 56.5% over this period, compared with roughly 35.7% rise recorded by the industry.
Attractive Valuation: Going by the EV/EBITDA (Enterprise Value/ Earnings before Interest, Tax, Depreciation and Amortization) multiple, which is often used to value steel stocks, ArcelorMittal is currently trading at trailing 12-month EV/EBITDA multiple of 5.9, cheaper compared with the industry average of 8.3.
Positive Earnings Surprise History: ArcelorMittal has an impressive earnings surprise history, outpacing the Zacks Consensus Estimate in three of the trailing four quarters, delivering a positive average earnings surprise of 40.1%.
Solid Q1 and Upbeat Prospects: ArcelorMittal saw its profits rise in first-quarter 2018, helped by a spike in steel prices. The company logged a profit of $1,192 million or $1.17 per share, a 19% rise from $1,002 million or 98 cents a year ago.
Revenues also climbed 19% year over year to $19,186 million in the quarter on the back of higher average steel selling prices and increased steel shipments.
ArcelorMittal, in its first-quarter call, said that market conditions are favorable and demand environment remains positive along with healthy steel spreads. The company continues to expect global apparent steel consumption to grow in the range of 1.5-2.5% in 2018.
ArcelorMittal remains focused on implementing strategic measures under its Action 2020 plan to drive profitability. The plan is a strategic roadmap for each of the company’s key segments, which targets a structural EBITDA improvement of about $3 billion. The program contributed $0.6 billion to EBITDA in 2017 with cumulative benefit of $1.5 billion.
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The company also remains on track with its cost-reduction actions under the program and is focused on deleveraging its balance sheet. Sustained commitment to reduce debt is leading to lower net interest expenses.
ArcelorMittal is also expanding its global portfolio of automotive steels by launching a new generation of advanced high strength steels, in line with the Action 2020 program.
The company has also announced a three-year investment program of roughly $1 billion at its Mexican operations, which is geared toward improving the quality and efficiency of operations. It will allow ArcelorMittal Mexico to produce 2.5 million tons of flat rolled steel that will be supplied to customers of domestic non-auto and general industry.
ArcelorMittal, earlier this month, also received the approval of the European Commission (EC) for its planned acquisition of Ilva S.p.A, marking a major milestone and a key step toward the deal closure.
The EC’s approval followed the conclusion of its Phase II probe into the proposed buyout of Ilva. The merger clearance has been granted on the basis that ArcelorMittal has committed to dispose of assets in Romania, Macedonia, Italy, Luxembourg, Belgium and Czech Republic.
ArcelorMittal believes that Ilva will prove to be a good investment without compromising the strength of its balance sheet. It will provide an opportunity to expand leadership and product offering in Italy, the second-largest steel producing and consuming market in Europe.
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